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AMERICAN SILVER EAGLE SALES ON PACE FOR A RECORD JULY AND YEAR

Spot prices have been crashing.  The sentiment around the financial world is that precious metals were in a bubble that has just popped.  Disregarding any of the fundamentals, people want to believe that things are changing and gold is becoming a dead yellow metal as it had in the 1990′s.

Confidence in precious metals has just about never been lower throughout the markets.  In a time when you can find numerous articles saying miners are now operating below the cost of production, everyone seems to be sticking their heads in the sand.  That is, except for those investing in bullion it seems.

The US Mint keeps track of monthly sales of their American Silver Eagle one ounce coins.  Generally these sell at a higher premium and have more of a demand than competing coins and bars, yet the numbers are still astounding.  Last year, entire July 2012 sales were 2,278,000 eagles.  Today, early morning on July 2nd,sales for July 2013 have already amounted to 826,000 ounces!  If you were to average that out over the entire month, sales would be about 10 times or 1000% what they were in July 2012.  Some of these sales might be from backlogging, but regardless, we are still far above the average pace.

This continues an expands the trend from 2012 as you can tell from the figures below:

Jan. 2012:  6,107,000                        Jan. 2013:  7,498,000      + 23%

Feb. 2012:  1,490,000                        Feb. 2013:  3,368,500     + 126%

Mar. 2012:  2,542,000                       Mar. 2013:  3,356,500     + 32%

Apr. 2012:  1,520,000                       Apr. 2013:  4,087,000     + 168%

May 2012:  2,875,000                       May 2013:  3,458,500      + 20%

Jun. 2012:  2,858,000                       Jun. 2013:  3,275,000       + 14%

The US Mint is on pace to sell over 52 Million American Silver Eagles in 2013.  Compare this to a total of 33.7 Million sold in 2012 is a 54.3% increase.  Even better, compare this to the last time silver was below $20 an ounce, which was late 2010.  At this same spot price, right before silver took off to $50 an ounce and many investors were still bullish on precious metals, sales in 2010 were 34.6 million ounces.

With mines closing and sales of physical bullion seeming to increase, you can imagine a shortage is essentially inevitable.  While I may have made this argument back in April within my Silver Squeeze Infographic, I think we are very close to seeing a real price explosion.  The fundamental argument is the same that was made then, but even more prevalent now.  Once there is a hiccup in the supply chain, either due to lack of production or too much demand, the price will be forced to increase in order for manufacturers to continue producing items that contain silver.  Once this occurs, the price may not have much constraints because the mining companies will be very humble in reinvesting and rehiring to increase production.  Many companies, including Barrick Gold, took on a lot of debt when gold was increasing rapidly, and are now in a lot of financial problems.  They will be hesitant to re-open closed mines and re-hire laid off employees until they know the price is stable at a higher price.  This may require gold and silver to reach new highs for the confidence to return to miners.  No one would re-open mines that were just closed with only a 20% increase in the spot price with such a volatile market.  With a real supply shortage, price increases can happen VERY QUICKLY, so you don’t want to be the one waiting for a bottom.  It will be exciting to see what the final ASE sales will be in July and if Drutter’s Divergence continues.

And don’t forget to keep an eye on interest rates.  If treasuries continue to rise, you should expect the Fed to step in.  This could be another catalyst to take precious metals out of the terrible sentiment they currently have.

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